1.The high exchange rate's threat to the
competitiveness of the nation’s products;

the loss of industries and the jobs they
represent;

the threat to national prosperity if exports
are put at risk; and

the mounting current account
deficit;

are issues
of concern that have often arisen in Australia over the last several
decades. The concern is valid and the issues real. They are issues that can
be resolved. To begin to appreciate how requires a basic understanding of the
'floating' exchange rate system (also known as 'the float’) that links them.

Isolation
of the Money Supply

2.--The float, a market-determined, variable exchange rate
system, was adopted by Australia
in 1983 (adopted in the US March 1973).It was designed by Milton Friedman,to 'buffer' the
disruptive effects of ‘external trade
shocks’ on an economy1To do
this, the float isolates an economy’s money supply so that no money can
leave or enter.The extent to which
the float succeeds in its buffering role is debatable.Nevertheless, the float is effective in
isolating the economy’s money supply.

The float isolates the money
supply

3.--To
ensure that the money supply does not change, the exchange rate rises and
falls to balance the flow of currency each way; hence its' description
'floating'.Payments for imports and
other current items such as interest on foreign debt must be balanced with
foreign receipts from exports and investments. However, payments and receipts being in balance means there is nothing
left over – There is no surplus from
export earnings to add to national savings!

‘Money
that might have entered an economy ….. is
spent on imports and other foreign commitments, andleaves the economy’

4.-Prior to
adopting the float, money earned from
exports added to national savings in the form of accumulated foreign
reserves.2When
converted to domestic currency, those reserves added to the economies money supply and fuelled growth in the domestic market, and the economy as a
whole.Not so, under Friedman’s
float – Incoming foreign money is spent on imports and other foreign
commitments, and leaves the economy.Exporters get paid, butregardless of how much is exported, no money can
be added to Australia's
existing money supply.3&3aThat is, under
the float exports bring no additional wealth to the nation!Another variable exchange rate system would allow
exports to add wealth.

Two-speed
or Pear-shaped Economy

5 The
present arrangement of no added money or growth from exports seems an
especially unfortunate consequence of government policy! To this adversity,
the float adds another! Rising exports increase the amount of foreign
currency trying to enter the Australian economy as export earnings. That drives up the exchange rate for the
Australian dollar.A rising exchange rate inevitably makes imports
cheaper than equivalent goods and services produced in Australia.Our
domestic industries, and jobs associated with them, are made uncompetitive
and progressively squeezed out of existence.4The more we export, the more we have to
import. The more we import, the more we undermine our
domestic industries.5#It is the same for the UK.In the USA, the product of this kind
of occurrence is known as the 'Rust Belt’.

Abandoned
factory in the US

perflickr
user Ol.v!er [H2vPk] at Yahoo.

An alternative
market-determined variable exchange rate system would allow Australia’s domestic industries to
be competitive and prosper.

6..-Isolation of the money supply
interferes with, and distorts, the demand and supply mechanism of that
economy.Demand skews to favour
imports as supply skews to focus on exports.It is in effect an interference in,
and distortion of, the market!That distortion diverts the economy’s wealth away
from domestic industries to exporters.Consequently, Australia’s
export industries such as mining, wood chipping, and 'live cattle to Indonesia'
to do very nicely and expand at the expense of
the nation’s other productive industries and jobs.6

7.A classic
example of the diversion of wealth phenomenon is Western Australia’s mining boom that
causes it to be seen in stark contrast to the more economically challenged
south-eastern states.This is the so-called 'two-speed’ or

‘multi-speed economy' which has often been extolled
as a blessing by those unaware of the true circumstances.#It is aphenomenon also evident in the European Monetary Union (EMU).It has benefited the great exporting
nation, Germany, with
positive Current Account Balances over the last 10 years that are mirrored
as negative balances for GIPS countries (Greece,
Italy, Portugal, and Spain). Paul Krugman’s diagram Fig 1 below illustrates the ‘Two
Speed’ (diversion of wealth) effect of the float. Some believe that the GIPS countries are detrimental to the survival of the EMU,
and that the departure of one or more of them
from the union can save the euro. But that would cause the debilitating
burden that is being borne by those countries to pass on to the next most
vulnerable EMU members. They in turn would succumb and leave.As the EMU steadily shrunk, the currency

‘the float ….interferes with, and
distorts, the demand and supply mechanism’ of an economy(causing it to go pear- shaped see Fig 1) below.

exchange rate for Germany’s
export goods would rise, and make their domestic industries less competitive
against imports. The ‘rust’ contagion already evident in Germany’s industrial regions
would spread.(Saving
the Eurohttp://www.buoyanteconomies.com/SavingTheEuro.pdf
refers)More
recently, the growing concern about GIPS countries’ debts has been causing
downward pressure on the euro exchange rate, and in the process making Germany’s
exports more competitive. Thanks to the
float,Germany’s
prosperity is tied to survival of the EMU.Similarly, Western Australia is
dependent on the rest of Australia.

8. As indicated in the opening paragraphs, in adopting 'the float',
Australia denied itself the ability to stimulate its economic growth through
the accumulation offoreign reserves
(national savings) that can be earned by exports. The Australian currency released into the money supply in exchange for
those accumulated foreign reserves had enabled economic expansion.However, removing this facility for
economic growth meant that the only other

significant source of money available to the economy was from the growth of
bank credit; that is, by going into debt.7In
1984 and 1985,to stimulate its economy, the Australian government deregulated the nation's banking industry.Thisallowed the nation's expenditure to be no longer constrained by its
income.Thus, the banks have been creating money for which there is no prior
entitlement (i.e. ‘un-endowed’ or unentitled) to the nation’s
productive capacity – Money that that
no-one worked for or saved.8It is excess money, that has caused demand to outstrip
supply and further distort the market.As a result, Australians have
increasingly spent future national earnings in the present.For the Banks, ‘things have never been
so good’.

8a. When banks issue
loans, they increases the amount of money deposited in the accounts of their
customers.The additional deposits
enable the borrowers to buy more than they have produced.When borrowers repay their loans, they are
reciprocating.But until a borrower
has reciprocated, the banking system has, in effect, facilitated a theft of
products from the market economy.7aThus, the banks
have been creating money for which there is no prior entitlement (i.e.
‘unendowed’ or unentitled) to their nation’s productive capacity– Money that no-one worked for or saved.

9. Deregulation of the banks enabled G-20 countries
like Australia, Britain, and the US, to buy more than they
produced. That is, unrestrained bank lending
has caused them to import more than they have exported.9It is a corruption of the market mechanism
that imposes significant distortions a nation’s whole economy.Those distortions include corresponding
growths of:

10. Uncomprehending
or in disregard of these various systemic distortions, G-20 central banks
worldwide are eager supporters and facilitators of the deregulation and the
float. Perhaps not surprising, given theseinstruments of monetary policy
are designed to favor the profitability of banks, not benefit the economy as
a whole.

10a. Indicative of G-20 central banks, the Reserve
Bank of Australia (RBA) make much of ‘inflation’ rather than ‘exchange rate
level’ being the prime target of monetary policy.10aHowever,
as Fig.2a testifies, RBA’s battle with inflation is ineffective.Significantly, the values for money price
pressure show a strong correlation with CPI over nearly three decades -
But exchange rate and fiscal policy has not had any noticeable impact on
that relationship.

11. For its’
assault on inflation, RBA (indicative of other central banks) utilizes the
variable exchange rate to encourage cheap imports into the Australian economy
and drive down domestic industry prices.Towards this end, RBA chooses not to ‘target’ or limit the level to
which the exchange rate rises.From
time to time, the RBA has traded currency to adjust the exchange rate in
keeping with this strategy. Their maintenance of high interest rates that
attract foreign investment has also played its part in driving up the
exchange rate and making importscheaper.17
However, RBA’s advocacy on behalf of
foreign suppliersseems
unnecessarily generous, given that it provides no benefit in controlling
inflation. RBA’s irrational encouragement
of high exchange rates does accentuate the two speed (transfer of

wealth) distortion of the Australian economy. The consequent
loss of Australian industries and jobs is not only an unnecessary and
costly waste, it also undermines the nation’s productivity.17aTypical of other G-20 central banks, RBA dismisses
these victims of its policies as being incompetent and inefficient.More
obvious, especially to exporters, is the high exchange rate’s inflationary
and anti-competitive impact on the price of Australian export products, and
their component costs such as labour. RBA’s obsession with a ‘strong’ but
uncompetitive Australian dollar is taking its toll.If collateral damage is to be regarded as
irrelevant, then the method in this madness can be rationalised - RBA’s unrelenting destruction of the
economy’s productive capacity, taken to its not so logical long-term conclusion,
will certainly eliminate inflation.

Declining
Wages

12.Another indicator of the negative effect of the float and
deregulation is average award wages. ‘In Australia, average real wages
were rising up until June 1984. The real rate of wages growth had been around
4% between 1969 to 1975. Then it slowed to
0.6% until 1983 when Australia
floated its dollar. It jumped more than 8% in the year to June 1984
following the float and when the value of the Australian
dollar declined rapidly. In the six years from June 1984 to June
1990, average real wages declined at an average rate of more than 1.6% per
annum. Since then, average real wages have been rising at about 1.4%
per annum. Despite this improvement, the rate of real wages growth is
less than half the rate of the 1960’s and 70’s. Average real wages did
not return to their June 1984 levels until June 2003. That is, Australia
experienced nineteen years without any growth in average real wages
above 1984 levels’ (See Fig. 3 below).‘As minimum wages are regulated in Australia,
Australian workers did not experience the same dramatic reduction in wages as
in the USA.’Per Impact of the Floating Exchange Rate System on
Employment and Growth.

13. Several strategies
have been tried repeatedly in an effort to redress the anti-competitive
nature of ‘the float’ and the imbalance in trade caused by deregulation of
banking.One has been in the form of
export drives - But unfortunately, an export drive is liable to cause a more
concerted upward pressure on the exchange rate for a nation’s currency thus
making its products even less competitive.Another approach is a‘Buy Australian’ campaign.Nor is this a panacea for addressing the attrition of a nation’s domestic
industries by ‘the float’. The demand generated by such a campaign inevitably
competes for the same supply of Australian dollars that exporters seek in
exchange for their foreign currency earnings.This puts further upward pressure on the exchange rate for our dollar,
and ironically makes imports more competitive.

Selling-off
the Farm

14.'The float's
requirement that 'payments for
imports and other current items such as interest on foreign debt must be balanced
with foreign receipts from exports and investments’(para 3 refers) is
significant in respect of deregulation.It means that the excess demand for imports generated by
'deregulation' can only be financed by foreign debt; or by'selling off
the farm', that is, selling Australia's domestic capital assets such as
mines, farms and other real estate to foreign corporations and other
foreign entities.11In effect, Australians are trading
their country piece by piece for consumables.

‘Selling
off the farm’-The Esau Complex

15. Demand in
excess of national income due to deregulation contributes to Australia
being a net importer of capital. However, additional inflow of capital can
occur if a nation, such as Australia,
is seen as a safe or an especially lucrative investment haven. As with exports, due to the isolation
effect of the float, foreign investment cannot, and does not, add to the
money supply.Capital inflow merely
puts upward pressure on the exchange rate, and causes more domestic
industries lose income as consumers increasingly divert their spending to
foreign goods and services now made cheaper. Exporter’s incomes suffer as
well,as their
competitive edge is blunted, as in the case
of BlueScope Steel in Australia. Some companies like QANTAS go offshore to escape Australia’s
‘high cost economy’. BHP and other
companies postpone multi-billion dollar projects like Olympic Dam.

16. Whether
a persistent high (and uncompetitive)
exchange rate is a result of foreign investment, or the mining industry
receiving foreign income for their exports, it costs the economy dearly.
The longer it continues, the deeper Australia will find itself sinking
in the recession that it doesn't 'have to have’

Government
Debt

17. Also consequential and symptomatic of 'the float',
is the problem world wide of the growth in government debt. 'The float's persistent
attrition of the productive capacity of countries such as the USA and UK means that government
revenue base cannot keep pace with government expenditure commitments to
its populace.Australia’s position in this
regard is much better than many others are, but diminishing GDP per capita
since 2008 (Fig. 4 below) indicates that the Australian situation is
deteriorating.Slowing growth of its revenue
base makes a government increasingly vulnerable to having to fund its
commitments with ever-expanding budget

… persistent attrition of
the productive capacity…

deficits.Fig. 2 above shows the Australian Government recently having to
respond to its revenue limitation with a fiscal deficit. Expenditure cuts and asset sales by various national
governments to reduce their debt do nothing towards resolving the systemic
failure emanating from ‘the float'. Likewise, Europe’s
recent symptomatic solution of fiscal discipline on its members (the ‘Fiscal
Pact’), and massive loan bailouts, stands to make no impression on the
systemic illness that is bringing the EMU undone. Such measures will tend to make things worse. Australia’s‘horizontal fiscal equalisation union’ of
its member state governments has provided an offset for the float’s ‘wealth
transfer effect’ on their revenue bases - However, the arrangement does not
compensate the economy as a whole for the attrition that the float steadily
inflicts on it and government revenue generally.Fig 2 also reveals that
contrary to the twin deficits theory, government budgets do not necessarily
influence the current account deficit.12

18.As Australia’s
spending in the present has swallowed up future earnings, its capacity to
service the mounting foreign debt has steadily diminished (Fig. 5 above
refers).After three decades of
recurring and growing trade deficits, it seems now that Australia must increasingly
generate trade surpluses to pay the interest on its foreign debt. (See Fig. 6 below)13Furthermore, the
'float's unrelenting erosion of Australia’s domestic industries
will continue to wear away its capacity to repay its debt.14Eventually Australia’s
mounting debt will be
beyond its capacity to service, and like Greece, it will be at the mercy
of its creditors.§15

‘capacity
to service the mounting foreign debt has steadily diminished’

19. The two-speed (pear-shaped) effect will tend to accelerate this
process.The more populated, and
increasingly impoverished eastern Australian states will
progressively diminish Australia’s
capacity for buying imports. Because exports
are offset by imports, the exchange rate for the Australian dollar will, in
response, rise to make imports cheaper and Australia’s
exports less competitive e.g. iron ore mined in Western Australia. Foreign earnings from expanding productivity of massive mining
projects will incur additional upward pressure on the exchange rate,
facilitate the flow of cheap imports, and erode mining profitability. In the event of diminished international
demand for China’s
products that use Australian ore, the flow-on effect will put further
downward pressure on ore production. Mining and carbon taxes
will be the least of their worries.

20.Not unlike Australia, in respect of having incurred an
ever-growing current account deficit and a corresponding domestic debt owed
to banks, is the United
States.But unlike Australia,
the US
is already struggling with massive, crippling, fiscal debt (Fig.
7 below refers).The float has effectively
gutted the United States’
economy.The US economy is now like an egg
emptied of substance, just a shell of its former self.A fragile faith in the US dollar is all
that has prevented the US
economy from collapsing.(http://www.buoyanteconomies.com/DebtIncome.htm
refers)

21.Though adopting Milton Friedman’s float in 1983, Australia’s first setback
in consequence of ‘the float’ occurred in 1973.President Richard Nixon caused the United States to adopt the floating exchange
rate system in March of that year, having coerced America’s major trading partners
to follow suit. Continuing constraints on bank lending (Banks having not
yet been deregulated), and the elimination of the ability to accumulate
foreign reserves as national savings through trade, stymied the US (and its trading
partners) capacity for economic expansion.A worldwide recession ensued that was to
last some two years.The recession is often attributed to the
OPEC oil embargo which began on 18 October 1973 in response to America’s active support for Israel in the Yom Kippur
war.The embargo lasted for 5 months
and was undoubtedly the source of major difficulties and costs.However, it was blamed for economic
difficulties that persisted long after.

21a.Milton
Friedman recognized that those persistent difficulties had to be policy
related and already in place before the oil embargo began.As he could not consider that the problem
might have any connection to him, Friedman attributed it to Richard Nixon’s
15 August 1971 decision:‘…in my
opinion, the wage and price controls …....was a major reason why we had both
inflation and stagnation during the rest of the 1970s.’18As can be seen
in Fig 8, the recession itself was gaining momentum by May 1973, five months
before the oil embargo, and it was largely over by April 1975.Unfortunately, as Milton Friedman
indicated, symptoms associated with the recession continued to plague the
American economy for many more years – This was because the underlying cause
remained in place that has continued to take its toll on advanced G-20 economies.

Fig
8 - The Recession of 1973–75 in the United States can be described as a U-shaped recession, because of its prolonged
period of weak growth and contraction.[1] Percent Change From Preceding Period in Real
Gross Domestic Product (annualized; seasonally adjusted); Average GDP growth 1947–2009Source:USBureau of Economic Analysisalso seehttp://en.wikipedia.org/wiki/1973%E2%80%9375_recession

22. The IMF
chart below (Fig 9) shows that the turning point where debt to GDP starts
to rise for G20 countries is 1973, the year that the US floated its exchange
rate. It reveals a noticeably persistent upward trend in debt levels of
advanced G20 countries subsequent to 1973.Page 11 of the paper states that "by 1960 . . . the advanced G-20
economy average debt ratio declined to 50 percent of GDP. .
.. Average advanced G-20 economy debt ratios trended down further
through the early 1970s; however, debt began to accumulate starting in the
mid-1970s, with the end of the Bretton Woods system
of exchange rates and two oil price shocks. This upward trend continued until
the current global financial crisis.”15a

24. The float-induced crisis that is
looming in Australia,
and elsewhere, is a consequence of government policy. Governments of some
countries, such as Singapore
and the Philippines, cognizant of their responsibilities, have
successfully modified their float system to mitigate most of its various
shortcomings18.The results are less than optimal, nevertheless those countries have:

a. Increased their national wealth;

b. Gained new domestic industries and jobs; and

c. Reduced their debt and improved their economy’s capacity to service
it.

Switzerland’s central bank, the SNB, also understands the need
to look after its’ national interests and maintain a competitive currency.China has proved to be particularly successful as an economic manager in
this regard.It has assiduously
avoided adopting the float and the deregulation of banking. Though its’ fixed
exchange rate system has no provision to optimise performance, China’s
economy has grown rapidly by accumulating savings earned from international
trade.

24. In curious contrast, the Australian government
chooses to blame its citizens for the mounting foreign debt. It calls on them
to raise productivity! Australian citizens could respond to their
government’s request if they were not

25. Recently, it had seemed that the US was about to leave Australia behind in recognising
and taking action to address the systemic disaster that confronts them. President
Barack Obama's speech of Tuesday, 6 December 2011, in
Osawatomie, Kansas, suggests this.His speech drew
attention to American banks’ (and ultimately the US
Federal Reserve’s) culpability for much of the US economic woes.A small improvement in employment figures
after 6 Dec 2011, indications by the Federal Reserve on 29 Feb 2012 that
another quantitative easing monetary stimulus

(QE3)was not imminent, and their anticipation of ‘low and steady
inflation’, also pointed to the possibility that the US had got
its act together.QE3 announced 13 September
2012 made nonsense of this.

The improvement in US fiscal deficit and employment figures,18and the availability of massive shale oil
reserves, has generated belief that the US decent into recession has
finished. The only obstacle to recovery perceived by such hopefuls is the
political confrontation at the top of the fiscal cliff.However; the US current account deficit
continues to grow, and loom large in the background.

Quantitative Easing

- Digging a deeper hole

26. Whether it is the US,
Australia, Britain, Iceland,
the European Monetary Union, or countries within that union, such as Greece,
the float has taken its toll.It is
evident the issues that have concerned Australians for several decades are in
fact symptomatic of the float. Aside from the volatility and instability
associated with it, the float progressively erodes the ability of domestic
industries to compete against imports; it destroys those industries, and the
jobs that go with them; and it prevents exports contributing to economic
growth. In tandem with unsustainable debt that the deregulation of the
banking industry facilitates, the future faced under the float, instead of
prosperity, is inevitably one of massive recession and grinding poverty – A vulnerable situation giving rise to massive social
costs in terms of physical and mental health, crime, civil unrest, and
national security issues.It is little
wonder that China
has been so dismissive of the float’s peddlers.

27.It is clear
that there needs to be a market-determined variable exchange rate system that
excludes the distortions inherent in Friedman’s exchange rate system and
associated deregulation of the banking industry. One such system is the Optimum
Exchange Rate (OER) System.This
system allows exports to add wealth to the
economy and facilitate growth. The OER also enables incentives to
be provided for the market to manage the exchange rate to achieve economic objectives
such as full employment, and low inflation.

.

John Griffiths

Originated
July 2011last updated 18 March 2013

The above observations include my attempt to summarise
the problem that is the subject of research presented by Leigh Harkness of Buoyant Economies in various papers available
at:- http://www.buoyanteconomies.com/

1The Floating
Exchange Rate System concept was a creation of Milton Friedman, who became an
economic adviser to US President Richard Nixon.

‘External
shocks and shifts in terms of trade' described as being ‘disruptive’ that
mightcause major inflation or deflation effects(See footnote 10 regarding inflation
post 'float'.). This was the declared purpose and benefit. Banking
Industry and the Reserve Bank both advocated adopting the 'float'. For
them, aside from being perceivedas mutually
convenient in terms of simplifying administrative controls, the
'internationalisation of the Australian dollar' seemed to offer aspects that
were seen as desirable. 'A Generation of an Internationalised Australian
Dollar', RicBattellino,
Michael Plumb, RBA, address SeoulKorea,
March 2009. http://www.bis.org/repofficepubl/arpresearch200903.11.pdf .(see footnote 3).

Treasurer
Paul Keating was awarded ‘Finance Minister of the Year’ by Euromoney Magazine in 1984 on the strength of this and
related policy implementation.See http://www.davidbrown1801nsw.info/LostStoryFound.html

2-Foreign
reserves are the accumulated savings of foreign currencies and gold as in
consequence of international trade.

3-Under the
previous (fixed) exchange rate system, exporters earned additional income for
their economy. That income raised the money supply by raising foreign
reserves, that is, national savings. Those savings added to national wealth
and economic growth. However, there were other aspects about this system that
made it unattractive to banking industry and the Reserve Bank of Australia
(RBA), and made them willing to opt for what they thought was a better
exchange rate system. (see footnote 1).

3a. While trading does not add to foreign
reserves, it does not stop a central bank from adding to the money supply by
speculating in the money market for specific purposes.
Under the float, sufficient foreign reserves are kept for
day-to-day and longer term administrative requirements (including accommodate
the RBA’s need to speculate in currency and influence the exchange rate) the but with no intention to accumulate beyond that.

4.-http://www.buoyanteconomies.com/Impact
of floating exchange rate Growth.htm at http://www.buoyanteconomies.com/
refers. Also, lost industries and jobs translate into lost revenue.

5# Blanchard
O and GM Milesi-Ferretti (2011), ‘(Why) Should
Current Account Balances be Reduced?’, IMF Staff Discussion Note 11/03.
Olivier Blanchard and Gian Maria Milesi-Ferretti provide a concise summary of the global
imbalance argument in a recent IMF paper.] They describe the difference
between ‘good’ and ‘bad’ current account deficits. Bad current account
deficits are those which result from domestic distortions or excessive
fiscal positions. Good ones are those which do not have such causes.' perGuy Debelle, Assistant
Governor (Financial Markets) RBA Address at ADBI/UniSA Workshop on Growth
and Integration in Asia Adelaide – 8 July 2011. 'Leigh
Harkness on the RBA CAD perspective' article
and succeeding comments on 'Macrobusiness'
discussion website of 11 August 2011 also expands on this.

6.Government exchange rate policy has caused the
failure of many productive Australian industries - Web page 'The Demise of
Australian Industry' list some of those.

6#.More
recently, reference has been made to Australia
having a three-speed economy, with the state of Victoria
and the Australian Capital
Territory sitting in middle place due to retail industry
and housing finance.Nevertheless, it
is still symptomatic of the float’s mechanism that facilitates the
redistribution of an economy’s (isolated) money supply, and foreshadows a
looming crisis

7.-The adoption of the 'float' placed the banking industry
in a pivotal position within the economy, and increased its potential for
income. (see footnote 1).Banks are quite unlike Savings and Loans
(S&L) organisations.S & L
organisations like building societies and credit unions can only lend from
the money that members deposit with them.They cannot alter the money supply with double entry bookkeeping as
banks do.Bank credit is not limited
to the money that customers lodge with them as deposits.

8- Growth of commercial bank credit due to deregulation whereby the nation's
expenditure is greater than its income can be
expressed logically as E = Y + Cr, where: E is national expenditure; Y
is national income; and Cr is the growth of commercial bank credit.
Conversely Y = E - Cr .Para 34 by Leigh Harkness
at http://www.buoyanteconomies.com/Impact%20of%20floating%20exchange%20rate%20Debt.htm refers. Deregulation
was in effect a license for the banking industry 'to print money'
(un-entitled money) and guaranteed their profitability. (see
footnote 1).

10B “In this
graph, the value of the CPI for December 1987 has been set as the base date
for measuring the price pressure from monetary sources. The values of
the price pressure are calculated using only the money supply (unendowed
money) and the real GDP as published by the ABS. The
definition of money is the same as used for calculating the current account deficit. The formula used to
model the change in the CPI is the square root of the change in the unendowed
money supply (currency and bank credit) over the change in the
real gross domestic product.”http://www.buoyanteconomies.com/AustInflation.htm

Australia's
foreign debt and foreign investment at dangerous levels -
"Between 1983, when the dollar was floated, and today, Australia's net foreign
investment has doubled from 27% of GDP to 58%.At
the same time our net foreign debt has risen from 14% of GDP to 39%. Media
Release, | Spokesperson: Bob Brown, Monday 10th May 1999,12:00amhttp://bob-brown.greensmps.org.au/content/media-release/australias-foreign-debt-and-foreign-investment-dangerous-levels.

12.There are quite a number
of national governments world wide with diverse budget priorities but
simultaneously experiencing fiscal deficit difficulties. Other difficulties in
common for the countries of those governments, such as significant C.A.D's, massive debts owed to banks, and collapse of
domestic industries, strongly suggests correlation rather than a mere
coincidence of their circumstances, and points to a systemic problem in
common, or systemic link. The futility of' expenditure
cuts and asset sales by governments' is also
reflected in the GDP formula when substituting M = X + Cr (and M= X+
K) from footnote 11 (see paragraph 7) into GDP = C+ I + G +[X-M],
giving GDP = C+ I + G +[X - (X + Cr)] = C+ I + G +[X - X – Cr], which reveals
that GDP = C+ I + G – Cr (and GDP= C+ I + G – K ) . -A world wide,
steadily growing 'Cr = M-X' indicates a debilitating systemic problem
that must ultimately impact on GDP and 'G'.

12A.In the case of
Greece; ‘the float’ has led an additional but more direct causal link between
Fiscal Deficit and Current Account Deficit, than a diminishing GDP.Rather than ‘run down its international reserves, Greece has been able to keep them
practically unchanged. Instead, Greece has used the EU rescue package and the
Eurosystem loans to increase domestic credit (i.e.
debt)‘Starting in 2008, ‘the sharp increase in domestic credit
provided by the Greek central bank mirrors the cumulative Greek liabilities
to the Eurosystem that resulted largely from the Eurosystem loans’.‘GREECE:
THE SUDDEN STOP THAT WASN’T, by Aaron Tornell
Frank Westermann,28 September 2011. See http://www.voxeu.org/index.php?q=node/7033.

13- That
is,receipts
from a trade surplus (the difference when exports exceed imports) pay for
interest on debt -para3refers.
The nature of ‘the float’
dictates that exports must inevitably be balanced by payments for imports and
other current items such as interest on foreign debt. Thus, any trade
surpluses, and recurring ones especially, that arise in ‘the float’
environment are a pointer to a mounting foreign debt problem.

The
impact on Australia’s
trade of the US floating
its exchange rate in 1973 and US
deregulation in 1980-82of banking is evident in Fig 5.9 September 1973 to 7 December 1983, the
Australian dollar was pegged to the US dollar.

14-Diminished capacity to service debt is also
suggested by the formula GDP = C+ I + G – Cr as Cr grows.(see footnote 12). But if Cr slows so will the
economy.

15
-Pyramid Economy? - This collapse is a logical outcome
from open-ended credit creation. The concept of adding wealth to an economy
through deregulation of the banking industry is as flawed
as any pyramid scheme - It is inherently unsustainable! Also,
it is highly improbably that those initially promoting and profiting from the
deregulation scheme ever gave serious consideration for the ultimate outcome
for other participants in the economy.

§Cost Benefit Analysis – This unsustainable debt,
along with forgone national savings; lost industries; lost jobs; and the lost
productivity the latter two represent;are massive costs incurred by
Australia due to the 'float' since its implementation. These are costs that
continue to mount up due to the steady aggressive nature of the systemic
failure. Whether the sum of these huge costs to the nation are a reasonable
trade in exchange for the uncertain and ad hoc benefit attributed to the
'float' i.e. 'protect an economy from external disruptions''(para 2 & footnote 1 refer) is perhaps a question
that the Commonwealth Auditor should investigate?

16-The Philippines have addressed the matter of national
savings to achieve these benefits but have yet to adopt an effective
competitive exchange rate policy. -PhilippinesCommercial
bank credit and the current account deficitpage
Buoyant Economies website http://www.buoyanteconomies.com/default.html
refers.

17. Paragraphs 14 & 15 also refer.RBA failure to intervene is consistent
with this strategy.See Formula for
the Current Account Balancepaper at http://www.buoyanteconomies.com/CAD_Formula.htm for
models that explain how growth in the quantity of money determines the current
account balance. It explains mathematically and graphically how current
account deficits are caused when additional money is created which finances
national expenditure in excess of national income (production). The paper
includes a model that explains what is happening in the case of economies
such as the Philippines
that significantly increase their foreign reserves.

17a. RBA
International Market Operations, 4. The Exchange Rate and Monetary Policy -‘Since the early 1990s, monetary
policy has been conducted under an inflation targeting framework. The
inflation target has replaced the exchange rate as the nominal anchor in the
economy. …… monetary policy no longer targets any particular level of the
exchange rate.…. In addition to
counterbalancing the influence of external shocks, ….the
other important role of the exchange rate in the transmission mechanism has
been in its influence on inflation. Under the fixed exchange rate regimes,
the Australian economy directly ‘imported’ the inflation rate of the country
(or group of trading partners) to which the exchange rate was pegged. With
the floating of the exchange rate, this was no longer the case. Instead,
movements in the exchange rate itself became a direct influence on inflation.
http://www.rba.gov.au/mkt-operations/intl-mkt-oper.html
26 May 2012 refers

18. Probably as a consequence of recently more
competitive US exchange rate,

An economy dependent
on debt for growth,

as opposed to one
that grows by accumulating savings from international trade,